Payment of Bonus Act, 1965
The Payment of Bonus Act, 1965 (Act No. 21 of 1965) is an important law on the topic of wages and bonus. It has 40 sections and 4 schedules.
- Article 43 of Constitution of India under the Directive Principles of State Policy expects 'Living Wages' for all workers
- Bonus helps in two manners:
- Increases employee wages so that they are closer to 'living wages'
- Employee efforts are recognized and this encourages work more - earn more
- The quantum of bonus depends on the quantum of profit
- Payment of Bonus Rules has only 5 rules and 4 forms
- Act applies to every factory (private sector) having 20 or more employees who are employed on any day during an accounting year
- Bonus is ordinarily paid within eight months of the closing of the accounting year. Responsibility to calculate and disperse lies with the employer.
- Bonus is paid in cash only
- Bonus is paid from the balance known as 'available surplus'.
An Act to provide for the payment of bonus to persons employed in certain establishments on the basis of profits or on the basis of production or productivity and for matters connected therewith.
Section 2 of Payment of Bonus Act, 1965: Definitions
Section 4: Computation of Gross Profits
- In case of a banking company, it is to be calculated as specified in First Schedule.
- In any other case, it is to be calculated as specified in Second Schedule.
- Section 5: Computation of available surplus
- Section 6: Sums deductible from gross profits
- Section 7: Calculation of direct tax payable by the employer
Section 8: Eligibility for Bonus
- Employees should have worked in the establishment for not less than thirty working days in that year (as recommended by the Bonus Commission).
- Section 2(13): Employee is entitled to get bonus if his salary or wages does not exceed Rs. 2500 per mensem
Section 9: Disqualification for Bonus
- An employee dismissed on charges of
- fraud (as defined in Section 17 of Indian Contract Act, 1872)
- An employee who is convicted by Court for the frauds committed against anybody unconnected with employment, is also a good ground for dismissal from service.
- riotous or violent behavior while on the premises of the establishment
- As defined Section 351 of Indian Penal Code, 1860
- Theft as defined by Section 351 of Indian Penal Code, 1860
- Misappropriation as defined by Section 403 of Indian Penal Code, 1860
- Sabotage leading to physical loss or damage to the property of the establishment
- fraud (as defined in Section 17 of Indian Contract Act, 1872)
Section 10: Payment of Minimum Bonus
- Minimum bonus shall be 8.33% of salary or wage earned by the employee during the accounting year or one hundred rupees, whichever is higher (Rs. 60 for employees who have not completed 16 years of age at the beginning of the financial year)
- Minimum bonus shall be payable irrespective of allocatable surplus
- Supreme Court said that the payment of bonus whether there are profits in relevant accounting year or not is in violation of Article 14 and 31(1) of the Constitution while dealing with Jalan Trading Co vs Mazdoor Sabha (AIR 1967 SC 691). The Supreme Court overrules the decision later in AIR 1979 SC 233.
- SC said, right to minimum bonus is statutory right which vests in the employees. Anand Oil Industries vs Labour Court (AIR 1979 SC 233)
Section 11: Payment of Maximum Bonus
- Maximum bonus is proportionate to the salary or wage earned subject to a maximum of 20% of such salary or wage.
Section 15: Allocatable Surplus
- 67% for employer being a company which has not made the arrangements prescribed under Section 192 of the Income-Tax Act; 60% for any other company
- If the Allocatable Surplus exceeds the amount of the maximum bonus payable to the employees in the establishment under Section 11, then, the excess shall, subject to a limit of 20% of the total salary or wage of the employees in the accounting year, shall be carried forward for being set on in the succeeding accounting year and so on up to and inclusive of the fourth accounting year to be utilized for the purpose of payment of bonus in the manner illustrated in Fourth Schedule.
- If no available surplus is available for the payment of the minimum wages and no amount or sufficient amount carried forward is available, the minimum amount or the deficiency, as the case may be, shall be carried forward for being set off in the succeeding year and so on up to and inclusive of the fourth accounting year in the manner illustrated in the Fourth Schedule.
- Where in an accounting year any amount has been carried forward and set on or set off under this section, then in the calculating bonus for the succeeding accounting year, the amount of set on or set off carried forward from the earliest accounting year shall first be taken into account.
Section 16: Special provisions with respect to certain establishments
- This section deals with special provisions with respect to certain establishments
- Section 17: Adjustment of customary or interim bonus against bonus payable under the Act
- Section 18: Deduction of certain amounts from bonus payable under the Act
- Section 19: Time-limit for payment of bonus
- Section 20: Application of Act to establishments in public sector in certain cases
- Section 21: Recovery of bonus due from an employer
- Section 22: Reference of disputes under the Act
- Section 23: Presumption about accuracy of balance-sheet and profit and loss account of corporations and companies
- Section 24: Audited accounts of banking companies not to be questioned
- Section 25: Audit of accounts of employers, not being corporations or companies
- Section 26: Maintenance of registers, records, etc.
- Section 27: Inspectors
- Section 28: Penalty
- Section 29: Offences by companies
- Section 30: Cognizance of offences
- Section 31: Protection of action taken under the Act
- Section 31A: Special provision with respect to payment of bonus linked with production or productivity
- Section 32: Act not to apply to certain classes of employees
- Section 33: [Repealed.]
- Section 34: Effect of laws and agreements inconsistent with the Act
- Section 35: Saving
- Section 36: Power of exemption
- Section 37: [Repealed.]
- Section 38: Power to make rules.
- Section 39: Application of certain laws not barred.
- Section 40: Repeal and saving.
The Fourth Schedule gives an exemplar illustration on how the Section 15 and 16 are to be dealt with.
- Minimum Wages Act, 1948
- Unorganized Sector Workers' Social Security Act, 2008
- Employee's Provident Funds and Miscellaneous Provisions Act, 1952
- Employee's State Insurance Act, 1948
- Equal Remuneration Act, 1976
- Payment of Gratuity Act, 1972
- Payment of Wages Act, 1936